Economy hit on multiple fronts
Bush rushes out credit proposals
WASHINGTON - Oil hit a record high, the dollar sank again, and consumers stopped buying pretty much everything.
Stocks kept gyrating, too, yesterday, swinging between gloomy recession evidence and rising hopes that all the bad news would bring another aggressive cut in interest rates when the Federal Reserve meets next week.
The Bush administration, conceding the economy is facing "difficult" times, rushed out proposals to fix various problems that have led to a severe credit crisis.
Administration officials predicted an economic rebound once the impact of the Fed's credit cuts and the recently passed economic stimulus package begin to be felt.
Private analysts weren't so sure, worrying that the economy is being hit by multiple blows and noting that plunging home sales and rising mortgage defaults are showing no signs of abating.
"We're in the belly of the recession beast right now, and all we really can do is take defensive action," said Bernard Baumohl, managing director of Economic Outlook Group.
The Commerce Department reported that consumers, battered by falling home values, job losses, soaring energy costs, and a severe credit squeeze, stopped going to the malls in February, triggering a 0.6 percent drop in retail sales. That was the second such drop in the past three months, a pattern consistent with the onset of a recession.
Consumer spending accounts for two-thirds of total economic activity, and many economists believe the country is in recession or soon will be.
At the White House, deputy press secretary Tony Fratto said the Bush administration expected a "difficult and challenging" period. But he also said Americans should have confidence in the long-term future of the economy because of the positive impact of the Fed's rate cuts and the economic stimulus package that will send rebate checks to 130 million households starting in May.
"I think it's important for the president to get out and talk about how he sees the economy, and why he sees the economy improving as the year goes on," Fratto said. But he conceded that surging energy prices were acting as a drag and that they "are not going to go away overnight."
Indeed, both crude oil and gasoline prices hit all-time highs yesterday, with crude closing at $110.33 per barrel on the New York Mercantile Exchange. Gasoline prices jumped 2.1 cents a gallon overnight to a national average of $3.267 a gallon, according to AAA and the Oil Price Information Service; analysts forecast they will keep climbing.
The dollar, meanwhile, dropped anew as global investors worried about the length and severity of any US downturn. The dollar dipped briefly below 100 yen for the first time in 12 years and fell to a new low against the euro.
On Wall Street, stocks slid but then rebounded somewhat as traders grew hopeful about a Fed rate cut Tuesday of one-half point to as much as three-fourths of a point. Investors' moods were also bolstered after Standard & Poor's predicted that financial companies are nearing the end of the massive write-downs in the value of subprime mortgages and other assets.
The rating agency estimated that write-downs of subprime asset-backed securities could reach $285 billion globally, up from a previous projection of $265 billion. However, it said that "the end of write-downs is now in sight for large financial institutions."
The worst of the slowdown has been the housing sector, which has been in a two-year slump that has seen sales and prices plunge in many formerly hot real estate markets. 